Tenaris S.A. Q1 2013 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited consolidated condensed interim financial results for Tenaris S.A. for the three-month period ended March 31, 2013. The company, incorporated in Luxembourg, operates primarily in the steel pipe manufacturing and distribution business. As of September 2012, the company is organized into a single reportable operating segment: Tubes.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2013 | Q1 2012 |
|---|---|---|
| Net Sales | 2,678,305 | 2,617,349 |
| Gross Profit | 1,032,873 | 1,006,252 |
| Operating Income | 553,585 | 566,201 |
| Net Income (Total) | 422,717 | 448,229 |
| Net Income (Parent Owners) | 424,777 | 438,641 |
| Earnings Per Share (Basic/Diluted) | $0.36 | $0.37 |
| Operating Cash Flow | 563,411 | 607,937 |
| Cash and Cash Equivalents | 948,777 | 772,656 (Start of Period) |
| Total Borrowings (Current + Non-Current) | 1,630,848 | 1,744,192 (Dec 31, 2012) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by approximately 2.3% year-over-year, driven by higher volumes and pricing, though offset by currency fluctuations.
- Profitability Decline: Operating income decreased by 2.2% ($12.6 million) and Net Income decreased by 5.7% ($25.5 million) compared to Q1 2012.
- Financial Results: Net financial results shifted from a gain of $12.7 million in Q1 2012 to a loss of $9.2 million in Q1 2013. This was primarily due to increased interest expense and unfavorable foreign exchange derivative results.
- Working Capital: Changes in working capital provided $16.3 million in cash flow in Q1 2013, compared to a use of $1.8 million in the prior year.
- Capital Expenditures: Capex decreased to $183.9 million in Q1 2013 from $196.4 million in Q1 2012.
Guidance, Outlook, and Risks
Dividends: The Board proposed an annual dividend of $0.43 per share ($0.86 per ADS), totaling approximately $507.6 million. This includes an interim dividend of $0.13 per share paid in November 2012. The remaining balance of $0.30 per share is scheduled for payment on May 23, 2013, pending shareholder approval.
Accounting Changes: The company adopted IAS 19R (Employee Benefits) effective January 1, 2013, resulting in a $60.7 million adjustment to other long-term liabilities and a corresponding impact on equity.
Material Risks and Contingencies:
- Venezuela Nationalization: The company continues to pursue arbitration (ICSID) regarding the expropriation of its Venezuelan subsidiaries (Tavsa, Matesi, Comsigua). Investments are carried at their June 30, 2009 value, with net receivables of approximately $28 million outstanding.
- Usiminas Litigation: A lawsuit filed by CSN in Brazil alleges Tenaris/Confab failed to launch a required tender offer when acquiring a stake in Usiminas. Tenaris believes the allegations are groundless and has not recorded a provision.
- Argentina Tax Assessment: An estimated contingency of approximately $23 million exists regarding tax loss carry-forwards in Argentina; no provision has been recorded as the company believes an obligation is not probable.
Investor Verification Checklist
- Verify the impact of the proposed $507.6 million annual dividend on future cash flows and liquidity.
- Monitor the status of the ICSID arbitration proceedings regarding the Venezuelan assets and potential recovery values.
- Review the outcome of the CSN lawsuit in Brazil regarding the Usiminas acquisition and potential tender offer obligations.
- Assess the sustainability of operating margins given the increase in interest expense and foreign exchange volatility.
- Confirm the classification and valuation of the $28 million receivables from Venezuelan entities.